December quarter earnings declined by 4.7% to Rs. 66.6 bn for 266 companies : First Capital

December quarter earnings in 2019 declined by 4.7% year-on-year (YoY) to Rs. 66.6 billion for 266 companies, primarily owing to sluggish performance in Food, Beverage and Tobacco (-35%YoY), Insurance (-41%YoY), Capital Goods (-23%YoY) sectors, First Capital Research said yesterday(04). However, earnings upside was witnessed in Banks (+17%YoY), Telecommunication (+259%YoY), Materials (+101%YoY) and Diversified Financials (+3%YoY) negating the negative performance in the above mentioned sectors,” it added. “Lackluster performance in Food, Beverage and Tobacco, Insurance and Capital Goods sectors was mainly owing to the lower consumer spending stemmed from subdued economic growth.” “Profit dip in CTC was due to successive tax hikes affecting volumes which resulted the -24%YoY in earnings, while BIL recorded a dip of -195%YoY mainly due to rise in cost of production and administration.” MELS earnings declined by -20%YoY in line with the dip in finance income and NEST dipped by -17%YoY along with the weakened consumer demand and rise in cost of sales. Accordingly, mainly led by the above counters, sector recorded a decline of 35%YoY. Dip of 41%YoY in Insurance sector earnings was primarily driven by CINS by -15%YoY and JINS by -98%YoY (due to rise in benefits, claims and expenses). In addition, HASU recorded a decline of 66%YoY (due to the previous year recording a tax reversal). JKH recorded a downturn in earnings of -50%YoY primarily due to the leisure sector still harboring the impact of Easter Sunday attacks, exchange losses on its foreign currency denominated cash holdings compared to the previous year and lower finance income as a result of the deployment of cash in new investments leading to a -23%YoY decline in Capital Goods sector earnings. Banks, Telecommunication, Materials and Diversified Financials presented signs of recovery: Banking sector witnessed a profit growth of 17%YoY to record LKR 23.0Bn primarily driven by HNB (+28%YoY) and SAMP (+29%YoY). HNB and SAMP profits were boosted due to the fall in impairments by 48%YoY and 21%YoY, respectively. Telecommunication sector recorded a growth of 259%YoY mainly due to DIAL recording an earnings growth of 2538%YoY primarily driven by the foreign exchange gain compared to the heavy exchange loss incurred in the previous year. Material sector presented a growth of 101%YoY in profits as a result of TKYO which posted earnings of LKR 257.0Mn relative to LKR 174.5Mn loss posted in Dec 2018 and improved performance in LLUB led by strong top line growth of 15%YoY. Diversified Financials sector posted a growth of 3%YoY with LOLC, LFIN and PLC posting earnings growth of 13%YoY, 27%YoY and 6%YoY, respectively, while earnings were supported by the strong net interest margin (NIMs).